For Tax Purposes Home May Not Be Where the Family Is

Supreme Court overturns appeal by Tax Authority against Israeli residing abroad.

Efrat Neuman
Efrat Neuman
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Israel Tax Authority offices in Jerusalem.
Israel Tax Authority offices in Jerusalem.Credit: Lior Mizrahi
Efrat Neuman
Efrat Neuman

The Tax Authority cannot determine an individual’s residence for tax purposes primarily based on where his family lives, the Supreme Court ruled Wednesday.

Three justices sided with Michael Sapir, backing a precedent-setting District Court ruling. The lower court ruled in May 2013 that an individual could be considered a foreign resident for tax purposes even if his spouse and children live in Israel.

As of 2003, Israel taxes people who are considered Israeli residents regardless of their location. Israeli residents are required to pay taxes on income, including income earned abroad.

In order to determine residency, the Tax Authority examines where a person’s “center of life” is − in Israel or abroad. Until now, the Tax Authority had determined a person’s residency automatically to be in Israel so long as the person’s nuclear family was in Israel.

In the current case, Sapir moved to Singapore in 2001 for a job. He later went on to work at other jobs in Singapore, and ultimately opened his own firm there. His wife and adult daughters stayed behind in Israel. Sapir argued that his center of life was in Singapore.

The District Court had sided with Sapir, arguing that the Tax Authority needed to examine details beyond the location of an individual’s family in order to determine residency. The court noted that Sapir worked in Singapore, had friends there, was considered a permanent resident and owned a Singaporean company and local bank accounts.

Justices Esther Hayut, Hanan Meltzer and Uzi Fogelman ruled to toss out the Tax Authority’s appeal, stating that Sapir met the conditions for determining that his center of life was in Singapore, even though he visited Israel frequently during the years in question.

Regarding the fact that his family stayed behind in Israel, Hayut noted that nowadays, some families choose unconventional arrangements.

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